DOOR SLAMS ON COMMON-LAW GROUNDS TO VACATE ARBITRATION AWARD UNDER TEXAS ACT

Decisively resolving a split among Texas courts, the Texas Supreme Court held that arbitration awards under the Texas Arbitration Act can be set aside only on the grounds identified in section 171.088 of the Texas Civil Practice and Remedies Code. Common law grounds, including “manifest disregard of the law,” do not justify vacating an arbitration award.

Hoskins v. Hoskins
Supreme Court of Texas (May 20, 2016)
Opinion by Justice Lehrmann; Concurrence by Justice Willett

The case arose from a family feud, with one son accusing his mother, his brother, and a family company of a host of wrongs, including fraudulent conveyance of real property. A previous settlement agreement and a bankruptcy court order required arbitration of the dispute. After the arbitrator entered a take-nothing award, the complaining son asked a trial court to vacate the award on multiple grounds. The court confirmed the award, and the court of appeals affirmed.

The Supreme Court granted the petition “to resolve a split in the courts of appeals on whether the TAA permits vacatur of an arbitration award on common-law grounds not enumerated in the statute.” The answer, according to the Court, was easy: “The statutory text could not be plainer: the trial court ‘shall confirm’ an award unless vacatur is required under one of the enumerated grounds in section 171.088.” Consequently, “the TAA leaves no room for courts to expand on those grounds, which do not include an arbitrator’s manifest disregard of the law.”

Justice Willett agreed fully with Justice Lehrmann’s analysis, and filed a concurring opinion to highlight the decision’s significance. In particular, he noted a similar split of authority (a “quagmire”) continued to plague courts applying the Federal Arbitration Act, following the United States Supreme Court’s 2008 opinion in Hall Street Assocs. v. Mattel, Inc., which left some doubt about the role of “manifest disregard” in reviewing arbitration awards. In 2009, the Fifth Circuit construed Hall Street as precluding vacatur on common-law grounds not listed in the FAA, in Citigroup Global Mkts. v. Bacon. In Texas, therefore, the role of the common law is restricted under both federal and state arbitration statutes.

One distinct difference remains between the TAA and the FAA. In Hall Street, the United States Supreme Court held the FAA voided an agreement that an arbitration award can be set aside if factual findings are not supported by substantial evidence or legal conclusions are erroneous. The Texas Supreme Court refused to apply that holding to identical terms in the TAA in Nafta Traders, Inc. v. Quinn (2011), because an “arbitrator derives his power from the parties’ agreement.” The Court in Hoskins reiterates its criticism of Hall Street’s “textual analysis.”